ARTifacts of Wealth

NFTs, amirite?

*thunderous applause*

Alright alright, settle down.

I’ve never been an art aficionado. My default assumption is that whenever a piece of art trades for a substantial sum, there’s money laundering at play. There’s a Youtube series that explains why historically Great Art is so Great. Michelangelo’s David was carved out of six tons of marble — okay that took some effort. Leonardo Da Vinci dissected a bunch of corpses to figure out face muscles, so the Mona Lisa is either smiling or frowning depending on where you focus. Okay, that’s kind of neat.

These were two-minute explainers, tops. Back in the olden days, a piece of art could convince someone of its value by actually being good. Artwork was purchased for personal consumption, the same way one might buy a houseplant or decorative gourd.

During the 1920s, A.W. Mellon was the US Treasury Secretary and third richest person in the country. When the Soviets needed foreign capital to finance their Five Year Plan, Mellon secretly negotiated a purchase of twenty-three masterpieces from the Hermitage Museum in Leningrad. By selling to the US Secretary of the Treasury, the Soviets secured extra cash as well as favorable trade policy where they had previously faced embargo [1].

Mellon then took the opportunity to establish the A.W. Mellon Educational and Charitable Trust. Later on, whenever he needed an income tax deduction, he “donated” a piece of art to the charitable trust. The paintings never left the walls of his homes, but that didn’t matter: Possession had been decoupled from ownership.

We’ve talked about the decoupling of monetary function here [2]. In early cultures, resource-constrained societies required objects to serve multiple roles. Shell beads were a display of wealth AND a store of value AND a medium of exchange AND a unit of account. As civilization advanced, people and objects gained a higher degree of specialization. Today, the objects that we use to store value (stocks and bonds) are different from the objects that we use as a medium of exchange (credit). And no one uses physical money as a display of wealth except maybe rap musicians.

Over the last century, art ownership has become specialized as a tool for wealth preservation. Nowadays, billionaires don’t even need to donate an entire painting to secure a lump sum deduction; they can donate a fraction of their ownership — just enough to maximize the IRS limit of 60% of adjusted gross income.

Why is modern art so shitty? Because the visual piece is irrelevant to the primary purpose of money laundering. Anything more than splattered paint on canvas is simply wasted effort.

And maybe the shittiness is the point. If art ownership has become specialized as a financial instrument, the physical medium has become specialized as an ideological test to expose wrongthinkers. It’s like an emperors-new-clothes type of ritual. If you don’t bid up the price of a Pollock, maybe you don’t deserve to come to Davos. The test is only effective if the painting is utterly stupid.

Here is a video of an NGO teaching post-Taliban women in Afghanistan about conceptual art. (Your tax dollars paid for this!) It’s important. Once you embrace the belief that a urinal is the epitome of fine art, only then can you be trusted to participate in a liberal democracy.

NFTs are not all that innovative; they’re just more explicit about decoupling the visual display from financial function. It’s no surprise that Christie’s and the Museum of Modern Art have embraced crypto art. Look, you can even set your Twitter avatar to an NFT as a sign of allegiance. You’re not gonna get a term sheet from a16z without one.

1. Noah Feldman. Scorpions, 2010.
2. Bitcoin as a Display of Wealth